This presentation was made by Tim Irwin, expert, at the 17th Annual Meeting of OECD Senior Management Officials held at the OECD, Paris, on 2-3 March 2017

1. Valuing Government Debt
OECD Accruals Symposium,
Paris, 3 March 2017
Timothy Irwin
timothyirwin@hotmail.com

2. How should government debt be valued?
• What are the options?
• What do accounting and statistical standards say?
• What do OECD governments do in practice?
• How good are the methods in use?
• Is there a better method?

3. Options
Value Also called Interest rate underlying value
Face value Nominal value Contractual rate
Market value Fair value Market rate at time of valuation
Amortized cost Nominal value Market rate at time of borrowing

4. Standards
Standard Valuation method
European debt rules Face value
IMF’s first manual on GFS Face value
SNA 2008, ESA 2010,
later IMF GFS manuals
Market value for securities
Amortized cost for loans
IPSAS
Market value if the
government trades its debt
Otherwise amortized cost

5. Practice
Accrual accounts Headline measure
Australia Market Market
Austria Facea Face
Belgium Face
Canada Amortizedb Amortizedb
Czech Republic Face
Denmark Facea Facec
Estonia Amortized Face
Finland Amortized Face
France Facea Face
Germany Face
Greece Face
Iceland Facea Face
Ireland Face
Israel Amortized Amortized?

6. Practice
Accrual accounts Headline measure
Japan Amortizedb Face
Korea ? ?
Latvia ?
Luxembourg Face
Netherlands Face
New Zealand Amortized Amortized
Norway Face
Portugal Face
Slovak Republic Face
Slovenia Face
Spain Amortized Face
Sweden Facea Face
United Kingdom Amortized Face
United States Amortized Facec

7. Debt proceeds in percent of face value
80
100
120
140
160
180
200
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
80
100
120
140
160
180
200
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16

8. Problems
• Face value need not bear any relationship to the burden imposed
by the debt and is manipulable
• Market value leads to the own-credit paradox: a government’s
debt falls when it becomes financially distressed
• Amortized cost suffers from a subtler, cross-borrower version of
the paradox and like other historic costs loses relevance over time

9. An alternative?
• An alternative is policy value, which is the balance-sheet analogue
of fiscal projections conditional on current government policy
• If policy is to repay its debt, this means valuing debt at the current
market interest rate less the credit-risk premium
• Policy value has some possibly unattractive features
• But it also has some advantages
• Avoiding the above problems with the other methods
• Integrating balance sheets and fiscal projections
• Possibly solving a puzzle in valuing noncommercial assets
• Measuring the cost of being indebted given policy